Emory Bankruptcy Developments Journal

The “Cure” to the Homeowner’s Bankruptcy Blues: An Analysis of a Homeowner’s Ability to Cure His Mortgage Default Under § 1322(B)(5) of the Bankruptcy Code

Andriana Glover | 34 Emory Bankr. Dev. J. 89 (2017)

Chapter 13 bankruptcy is often defaulted homeowners’ only avenue to avoid foreclosure and remain in their homes. Debtors seeking to save their homes usually rely on Code § 1322(b)(5) which provides that a debtor may “cure” a default. Many mortgage lenders object to debtors’ plans proposing to cure the mortgage default on the grounds that the plan is modification of their rights, forbidden by § 1322(b)(2). Circuit courts have regularly allowed debtors to cure a default without running afoul of this anti-modification provision. The Fourth Circuit has abruptly turned course by disallowing such a cure. As a remedy, the author proposes an amendment to the Code to include a provision that defines a cure as a debtor’s ability to nullify the consequences of default and restore the debtor to his pre-default conditions.

Government Recovery of Medicare Overpayments and the Automatic Stay

Maleaka Guice | 34 Emory Bankr. Dev. J. 127 (2017)

Despite the importance of the automatic stay, in healthcare bankruptcies it is not always applied consistently, especially when the government is the creditor. Government agencies decide whether they will require the bankrupt healthcare provider to repay any Medicare overpayments previously paid. As such, government agencies may jump other creditors based on the equitable doctrine of recoupment. Recoupment is a doctrine recognized by bankruptcy courts allowing for creditors to offset their debts against payments. This is similar to setoff, an action that is not permitted under the Code. The author argues that government agencies should not be allowed to continue recoupment actions against healthcare entities that will jeopardize their reorganization processes. The author suggests that courts can fix this issue by narrowly applying the doctrine of recoupment and reducing the circumstances in which government agencies can collect from bankrupt healthcare entities without seeking relief from the automatic stay.

Finding the Right Insurance Policy: A Uniform Set of Guidelines for Applying the Burford Abstention Doctrine in Cases Involving State Insurance Insolvency Proceedings

Benjamin A. Ries | 34 Emory Bankr. Dev. J. 165 (2017)

Courts often apply the Burford abstention doctrine in cases involving a state insurance insolvency proceeding. This tendency for federal courts to remand cases in deference to state proceedings in the insurance insolvency context derives from a Congressional policy of allowing states to regulate the insurance industry under the McCarran-Ferguson Act and the exclusion of insurance companies from the Bankruptcy Code. The author examines the processes used by different courts to determine whether to invoke Burford abstention and proposes the adoption of a formula that builds upon a set of factors developed by the Tenth Circuit to address additional concerns. The proposed formula draws from case law and the policy goals underlying Burford abstention while emphasizing the role of avoiding the disruption of a state’s efforts to establish insolvency proceedings for insurance companies. Through a six-part test, Courts can properly navigate the application of the “troublesome and enigmatic” Burford abstention doctrine.

Bankruptcy’s Role in the Growing Dilemma of Self-Bonding in the Coal Industry

Jeanna Heard | 34 Emory Bankr. Dev. J. 205 (2017)

Long-standing regulations mandate that coal companies post bonds for land restoration after mining operations are complete. However, coal companies can use financial liquidity to satisfy these bonds, known as self-bonding. Companies are using the fiscal strength of subsidiaries instead of their own accounts to self-bond. Ultimately, a company can appear financially healthy enough to qualify for reclamation bonds, but in the face of a declining industry it may not have enough cash to cover full clean-up of mining sites. Bankruptcy highlights the insufficiency of such reclamation procedures and the supporting bonding process. The author evaluates several ways to cope with the self-bonding problem under the existing bankruptcy framework, including the existing requirements of the good faith and feasibility requirements, and proposes a carved out exception within the Bankruptcy Code disallowing prior coal bankruptcy debtors from self-bonding.

Out of Reach: Protecting Parental Contributions to Higher Education from Clawback in Bankruptcy

Jenna C. MacDonald | 34 Emory Bankr. Dev. J. 243 (2017)

Parental contributions to higher education have become commonplace. However, courts are divided on how contributions by parents towards the college education of their children should be treated when those parents file for bankruptcy. Trustees are attempting to use the fraudulent transfer provisions of the Bankruptcy Code to “clawback” payments made to colleges and universities by debtors for the education of their children. The author proposes amendments to the Code to protect payments to institutions of higher education by parent debtors on behalf of their children. With simple additions to § 544 and § 548, federal lawmakers can advance the public’s interest in higher education, protect creditors, and limit the need for litigation around the subject.

Averting an Inside Job: A Proposal to Change How Insiders Are Defined in the Bankruptcy Code

Johnathan D. Green | 34 Emory Bankr. Dev. J. 279 (2017)

In most situations, the Bankruptcy Code prohibits insiders of businesses from seeking preferential treatment from a bankrupt debtor. One way the Code does this is through excluding an insider’s vote from the plan approval process in a chapter 11 bankruptcy cramdown. But, if an insider can find a way to escape the narrow statutory insider definition in the Code, then the usual prohibitions on insider conduct may not apply. In addition to the narrow, specified list of statutory insiders in the Code, courts have crafted various definitions of non-statutory insiders as well. This lack of uniform and predictable application has thwarted one of bankruptcy’s main goals: the equitable treatment of creditors. The author examines courts’ conflicting applications of insider rules, with a focus on chapter 11, and recommends a change to how insiders are defined in the Code to prevent inequitable outcomes for creditors.